Zambia’s inflation rises as food becomes expensive, Kwacha weakening

LUSAKA, March 29 (Reuters) – Zambia’s inflation quickened year-on-year in March, pushed up by higher food prices, while the economy grew slightly more in 2011 than earlier estimated, the Central Statistics Office said on Thursday.

The year-on-year rise in the consumer price index in Africa’s biggest copper producer accelerated to 6.4 percent from February’s 6.0 percent – its lowest rate in at least 10 years – mainly due to the rising cost of food, the heaviest weighting in the inflation basket.

A Reuters poll last week showed Zambia’s inflation should stay in single digits and average 7.2 percent this year.

However, analysts said weakness in the kwacha currency since the election in September of populist opposition leader Michael Sata posed a threat to that relative price stability.

The kwacha, which hovered around the 4,700 to the dollar level for much of 2011, has lost around 6 percent since Sata’s election victory in September amid fears his administration will make life harder for foreign investors.

It was trading at 5,270 on Thursday.

“There will be a lot of pressure on inflation in the coming months arising from a weaker kwacha, higher oil prices and wage demands,” said Joseph Chikolwa of the Economics Association of Zambia, a Lusaka-based think-tank.

“Still, I don’t think we will see double digits because food inflation will be moderated by the new maize harvest.”

The central bank is due to announce an inaugural benchmark interest rate later on Thursday, a move analysts said should help steer the economy towards price stability.

The CSO also increased the southern African country’s growth estimate to 6.6 percent from the 6.5 percent earlier stated, compared with 7.6 percent expansion in 2010. Growth was mainly driven by the construction sector.

Earlier this month, the International Monetary Fund forecast higher economic expansion of 7.7 percent for Zambia this year due to strong growth in copper production and non-maize agriculture.